Definition
In extensive form games, and specifically in stochastic games, a Markov perfect equilibrium is a set of mixed strategies for each of the players which satisfy the following criteria:
- The strategies have the Markov property of memorylessness, meaning that each player's mixed strategy can be conditioned only the state of the game. These strategies are called Markov reaction functions.
- The state can only encode payoff-relevant information. This rules out strategies that depend on non-substantive moves by the opponent. It excludes strategies that depend on signals, negotiation, or cooperation between the players (e.g. cheap talk or contracts).
- The strategies form a subgame perfect equilibrium of the game.
Read more about this topic: Markov Perfect Equilibrium
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